Buy DCB Bank; target of Rs 120: Kotak Securities

Kotak Securities' report on DCB Bank

"With a healthy tier-1 ratio, low impairment-related issues and a stable revenue profile, the bank has been steadily growing its balance sheet by ~25% CAGR in recent years with a large part of revenue invested back in expanding the bank’s presence. We like the bank’s execution skills and maintain it as our preferred small-cap idea despite strong outperformance."

"We maintain our BUY rating on the bank and value it at `120 (from `105) reflecting changes and roll forward of earnings (September 2016). At our target price we value the bank at 1.9X book and 14X EPS for RoEs of 13-14% but strong earnings growth of 17-20% CAGR over the next few years. Despite the recent outperformance, we think DCBB is a good bank to own. The scope for valuation expansion is high apart from good earnings compounding over the long term. We don’t see RoEs expanding in the medium term as the bank would continue to keep cost growth at relatively high levels. Apart from a strong tier-1 ratio, low impairment risks and high growth phase of the bank, our positive view is primarily driven by the effective execution of the current management, which we think is one of the best among peers. DCBB remains our preferred mid-cap pick", says Kotak Securities research report.

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